FLORIDA RETAIL NURSERY AND GARDEN CENTER BUSINESS ANALYSIS PROGRAM
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1 Proc. Fla. State Hort. Soc. : FLORIDA RETAIL NURSERY AND GARDEN CENTER BUSINESS ANALYSIS PROGRAM J. Robert Strain and Karl W. Kepner IF AS Food and Resource Economics Department, University of Florida, Gainesville, FL 326 Abstract. The Florida Retail Nursery and Garden Center Business Analysis Program provides financial record in formation for retail nursery and garden supply firm opera tors. Twenty-one firms voluntarily provided their operating statements and balance sheets for analysis. Records were transformed into a standard form and averages computed for all firms, for the 7 most profitable and for the 7 least profitable firms. Average return on investment was 7%. The most profitable third of the firms averaged almost 35% return while the least profitable third lost money on their investment. Extension specialists working with Florida retailers were being asked questions such as, "What do others spend for advertising?" "Rent?" "Labor?" "Cost of goods?" "Utili ties?" The Florida Retail Nursery and Garden Center Business Analysis Program was initiated in the fall of 76 to find answers to such questions. Records from 2 volunteer firms were analyed and averages computed for the most profitable third, the least profitable third, and for all participating firms. Operating Statements Operating statements supplied by the participating firms were studied and a standard form for operating statement data was developed (Fig. ). Operating statement data from cooperating firms were then re-organied into this standard sequence for analysis. However, costs for the least profitable third were double those for the most profitable third. Advertising. Advertising expense, though a small part of total operating costs, was treated separately because of industry interest in such expenditures. This item averaged around 2% for all 3 groupings of firms. operating costs. This group was intended to in clude all remaining expense items that could be attributed directly to operation. Average was 3.4% of sales, but the least profitable group had 4.7%. Office & Administrative. This category was intended to cover general overhead other than salaries and wages. It represented about 2% of sales for all three groupings. Miscellaneous expense. All remaining expense items that were neither direct operating expense nor administra tive overhead were included in this group. Among other things, it included returns, allowances, discounts and credit card service charges. This item ranged from to.4% of sales. Net Profit Net profit is what is left over after subtracting total expenses from gross margin. Net profit for the 2 firms averaged 5,873 or 2.8% of sales. The most profitable third had triple the average net profit and over twice the percentage of sales in net profit. The least profitable third lost 6,830 or 5.8% of sales. Balance Sheets A standard balance sheet (Fig. 2) was developed through the same procedure followed for the operating statement. Similarly, balance sheet data from cooperating firms were reorganied into the standard sequence for analysis. Sales Analysis showed average sales were 208,8 (Table ). Sales for the most profitable third were 34% higher than the average for all firms while sales of the least profitable third were only 56% of the average. Cost of goods sold (COGS) refers to the cost of goods purchased for resale. COGS averaged 52.% of sales. Gross margin is what is left after the COGS is subtracted from sales. Gross margins averaged 47.%. For the most profit able third of the firms, COGS amounted to only 4.% of sales and gross margins were 5%. For the least profitable third, COGS were 56.2% and gross margins 43.8%. Expenses Salaries and wages. This was the largest single expense category, and represented about 26% of sales. No noticeable difference existed between the 2 firm average, the most profitable third average and the least profitable third average. Fixed overhead. Expense items of a relatively fixed nature were grouped together as fixed overhead. This represented the second largest expense category and averaged 8.4% of sales. For the least profitable third, fixed overhead was higher at 0.% of sales. UtilitJjvi. ij l for heat, electricity and water-sewer costs made up the utilities group. They averaged.4% of sales. 208 Assets Assets of the participating firms were totaled in of 3 categories. Current assets were either cash or assets that could be turned to cash within a year. Fixed or long term assets were those whose value could not likely be turned to cash during the next year. assets were those that were not readily recognied as either current or long term business assets. Balance sheet averages showed current assets at 45,0, fixed assets at 20,774 and total assets at 68,45 (Table 2). For the most profitable third of the firms, total assets were 25% higher than the average. The largest difference appeared in current assets. For the least profitable third, current, fixed and total asset figures were about half the average. Liabilities Liabilities of the cooperating firms were totaled either as current or long term liabilities. Current liabilities were those obligations due within the coming year. They in cluded accounts payable, accrued expenses and note or mortgage payments due within a year. Long term liabilities were those obligation not due to be repaid during the next year. Current liabilities averaged 5,30, long term liabili ties 8,530 and total liabilities 34,460. The figures were similar for the most profitable third of the firms. For the least profitable third, they were about 60% of the average. Proc. Fla. State Hort. Soc. : 78.
2 JRS FORM 5R2 / 3/78 name From OPERATING STATEMENT To ITEM LAST YEAR % % SALES INCOME k I Beginning Plus Plus purchases freight inventory Minus ending inventory Less Cost Of Goods GROSS MARGIN E Owner-management salaries.... Owner-management fringe costs.. Employee wages employer portion of FICA.. unemployment comp insurance. other Payroll costs... Salaries And Wages Rent Depreciation Interest Insurance Taxes and licenses Fuel Electricity Water and sewer Utii ties Advertising Operating Rentals supplies Repairs and maintenance Operating Costs II ( CO XPENSES A.. CO.. * ( A.. CO )( ) co Office supplies, postage, etc.. Phone Bank charges Legal, accounting, audit.... Travel, conventions, entertain. Office And Administrative Overhead ^ Dues, donations, subscriptions. Discounts, allowances, returns. Bad debts Sales tax remittances Miscellaneous Expense.... TOTAL EXPENSE.. PROFIT Fig.. Standard operating statement form for Florida retail nursery business analysis program, 78 Proc. Fla. State Hort. Soc. :
3 Table. Operating statement averages for 2 firms, 7 most profitable firms and 7 least profitable firms, 76 data. Item 2 firm average Most profitable third Least profitable third Sales Beginning inventory Plus purchases Plus freight Minus ending inv Less cost of goods 2,858 2, (3,833) 208,80 0, % (5.2) ,2,38,653 3 (34,607) 278,53 38,7 00.0% ( * (2.4) 4. 8,834 65, (,37) 7,85 66, % (6.4) 56.2 Gross Margin 8, ,56 5 5, Owner-mgt salaries Emp wages & costs Total sal & wages Rent Depreciation Interest Insurance Taxes, lie, fees Fixed overhead Utilities Advertising Automotive Supplies Equip rentals Repairs-maintenance op costs Postage & supplies Phone Bank charges Legal & audit Travel-entertainment Office & adm Dues, don subsc Disc, allow Bad debts 8,4 35,488 6,237 3,600,203 4,63 2,234 2,448 2, ,2,47,06 83, ,470 53,682 7,437 2,03 4,48 7,43 4, % * ,222 50,86 6,22 5, ,755 4,84 2,672, ,005,85,45 6, ,73 73,04 23,324 3,020 5,550,476 5, % # 0.6 4,600 6,2 6, ,52 486,08 3, , ,084 30,6 2,888 2,660 2,384 5,57 2, % Misc expense 2, ,86.0,676.4 Total Expenses 2, , , Net Profits 5, , ( 6,830) (5.8) Less than %. Table 2. Balance sheet averages for 2 firms, 7 most profitable firms and 7 least profitable firms, 76 data. Item 2 firm average Most profitable third Least profitable third Assets Cash Accounts rec Inventory 6,372 6,056 3il,833,640 4,083,66 34,607,40,783 36,37 67 Current assets Fixed assets 45,0 20,774 2,270 60,56 25, ,22 0, Total Assets 68,45 86,003 33,035 Liabilities and net worth Accounts payable Accruals Notes,438,822 4,670 8,552,707 5,885 4,67,703 2,624 Current liabilities Long term liabilities 5,30 8,530 6,44 22,07,006 2,34 Total Liabilities Capital stock Retained earnings 3,00 6,08 4,487 34,460 6,034 3,88 27,83 38,24,30 8, 75 2,40 Net Worth 34,485 47,762,05 Total Liab & New Worth 68,45 86,003 33, Proc. Fla. State Hort. Soc. : 78.
4 name BALANCE SHEET as of JRS FORM 6R2 / 3/78 date ITEM LAST YEAR 46 Cash 47 Accounts receivable. 48 Inventory 4 50 Current Assets k Fixed Automotive Machinery, tools, equipment.. Buildings and fixtures.... Leasehold improvements.... Land Subtotal (original cost). Less reserve for depreciation. Assets V 5 Assets.. 60 TOTAL LIABILITIES AND WORTH 6 Accounts payable 62 Accruals 63 Current portion of notes... 6k Current Liabilities 65 Mortgages Notes 67 Long Term Liabilities 68 TOTAL LIABILITIES Capital stock or investment. Retained earnings capital values... WORTH 73 TOTAL LIABILITIES AND WORTH Fig. 2. Standard balance sheet form for Florida retail nursery business analysis program, 78. Net Worth Net worth represents the difference when all liabilities are subtracted from total assets. Net worth is how much of the total business that the owner owns. Net worth figures were grouped into capital investments, retained earnings and other capital items such as the difference between the original cost and current appraised value for land. For the 2 firm average, net worth at 34,485 was about equal to total liabilities. The most profitable third had 0% greater liabilities and close to 40% greater net worth than the average. The least profitable third had Proc. Fla. State Hort. Soc. : % of the average in liabilities and only worth. Total Profitability in net The figure of particular interest to retailers is return on net worth what the firm earned on the money invested by the owners. This analysis is shown graphically in the total profitability model (Fig. 3). Margin management The margin management section draws upon the 2
5 i- SALES LU < 2 7 8, , COGS 3 8, 0. 66, GROSS MARGIN 3, ,6 PROFIT 6,68 2 5,873 ( 6,8 3 0 PROFIT MARGIN KEY: MOST PROFITABLE THIRD 2 FIRM AVERAGE LEAST PROFITABLE THIRD o < EXPENSES O < CASH , ACCT. REC, INVENTORY ,37 OTHER.40 A. A f\ 6 7 mm m m 2 2, 4 2r , 4 4 CURRENT 60, FIXED 2 5, ,774 0,04 6 SALES 2 7 8, ,8 7,85 SALES 2 7 8, ,8 7,85 TOTAL , < 5 ASSET TURNOVER RETURN ON J % % k %) RETURN ON WORTH ACCT. PAY. Ul > UJ 8,5 5 4,43, ACCRUALS,707, NOTES PAY , CURRENT LIABILITIES L.T. 2 6,44 5,30, L*AB i 2,34 TOTAL LIABILITIES ,460 2,4 0 WORTH ,0 5 LIABILITIES AND WORTH ;45 3 3,035 WORTH ,485,05 LEVERAGE Fig. 3. Total profitability model analysis for 2 firm average, for 7 most profitable firm average and 7 least profitable firm average. 76 data. operating statement. As noted earlier, average net profit an asset turnover figure of This times net profit was 2.8% of sales. margin resulted in a return on assets (or total investment) of 8.5%. Asset management The asset management section involves the asset portion " of the balance sheet. Sales divided by total assets resulted in Leverage expresses the relationship between total 22 Proc. Fla. State Hort. Soc. : 78.
6 assets and that portion of total assets (called net worth) belonging to the owners of the firm. For the 2 firm aver age, half of total assets were liabilities and half were net worth. Thus, the leverage factor was 2, meaning that re turn on assets (8.5%) is multiplied by 2 to show return on the owners' portion of total assets. This gave an aver age return on net worth of 7%. The same procedure for the most profitable third resulted in an average return on net worth of 34.% while the least profitable third showed a negative return on net worth. Implications of the Program for the Retail Industry Information developed in the first year of this project should be interesting and useful to many retail nursery and garden supply firm operators. Data for their own firm could be compared to these findings for trouble spots or serious departures from the average. retailers may wish to participate in this program. As this report on 76 data is being prepared, 77 records are being received. The pro gram is open to all Florida retail nursery and garden supply firms. Cooperating organiations benefit from an analysis of their own financial records and the report on the average of others in the program. Proc. Fla. State Hort. Soc. : USING THE UNIVERSITY OF FLORIDA NURSERY BUSINESS ANALYSIS John A. Otte IF AS, University of Florida Food & Resource Economics Department, Agricultural Research & Education Center, Bradenton, FL AND Dan L. Gunter IF AS, University of Florida, Food if Resource Economics Department, Gainesville, FL 326 Abstract. Nursery record analysis aids nursery manage ment. Each year the University of Florida Food and Re source Economics Department surveys container, field and foliage nurseries to collect financial and physical produc tion data which are summaried by sie and type of nursery. Individual growers can calculate performance measures from their records and compare them to the summaried averages. This report explains how nursery managers can use this information to identify nursery strengths and weaknesses and plan future operations. Nurserymen want to earn profits. They also want to know how their nurseries compare with similar sie and type operations. The University of Florida Food and Re source Economics Department annually surveys container and foliage nurseries to collect financial and physical pro duction data. These data are summaried by type and sie of nursery and published in annual nursery business analysis (NBA) reports for container and foliage nurseries (, 2, 3). The nursery business analysis reports can be used to evaluate business profitability. If a nurseryman's net nursery income is satisfactory and compares favorably with similar sie and type nurseries, he may not want to use the NBA. If a nurseryman's income is below average, he can use the NBA to identify problem areas. Keys to Using Nursery Business Analysis Reports Comparison and explanation are the keys to using the NBA reports to troubleshoot nursery problems. Use a systematic approach. First, determine whether your opera ^Tiori&a Agricultural Hxpermient Station Journal Scries No. 57. tion is a container, foliage, or field nursery. Next, obtain a copy of the appropriate container, foliage, or field nursery business analysis report. Third, calculate your business efficiency measures from your income statement, labor records, inventory values, depreciation schedule and in formation on production areas. Finally, compare your efficiency measures to the average efficiency measures for similar nurseries contained in the NBA report. Areas where your measures differ will identify strengths and weaknesses. You should be able to explain why you are strong or weak and plan action. The following small foliage nursery case study illustrates the approach. We use the 76 NBA report and the averages for the 2 smaller volume nurseries as the basis for com parison. Not all efficiency measures contained in the NBA are used in this study. Income Comparisons Comparing net income and return to capital to NBA averages (Table ) indicates the relative profitability of the case nursery. Value of own plants sold in the case nursery was 6,278 less than the average of the smaller Table. Income summary comparing average of 2 smaller volume foliage and potted flowering plant nurseries to case nursery. Item Value of own plants sold Plant inventory change Supply inventory change Miscellaneous cash income Total gain Cash costs less operator's salary Non-cash costs less interest cost at 8% Total gross costs less operator's salary and interest costs Net nursery income Value of operator's salary Return to capital Rate of return to capital investment Average 2 smaller nurseries 38,278 22, , ,472 2,00 8,337 37,437 88,035 25,78 62,057.6% Case nursery 220,000 63,000, ,200 22,070 6, ,070 47,30 30,000 7, % Proc. Fla. State Hort. Soc. :
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